Before reviewing mortgage rates, you need to decide what kind of mortgage you’re looking for. The range of mortgages offered by banks can sometimes be quite daunting, but they basically break down into two main categories; fixed rate mortgages and variable rate mortgages.
Fixed rate mortgages may be a good option if you feel that interest rates are likely to go up and you want the comfort of knowing exactly how much you are going to have to pay each month. Typically, the fixed rate element of the mortgage will be for a set period. e.g. the rate may be fixed at 5% for the first 5 years, and then will default to the bank’s standard variable rate.
With variable rate mortgages there is the chance that your monthly payments will either go up or down, depending on what happens to the overall Base rate. You should look out for special discount offers.
Having decided on the type of mortgage that you want, you then need to compare rates to make sure that you get a good deal. The easiest way to do this is to visit a money comparison site. An example in the UK is www.fool.co.uk. An alternative is to speak to several banks (or visit their websites) and get a quote from each of them. I’d suggest that you speak to a minimum of three banks and ideally five or six to make sure that you get a good deal.
As well as looking at the rate, remember also to check out the conditions that are attached to each mortgage. Some of the key things to look for include:
– Are you allowed to overpay or make lump sum payments into the mortgage. The general rule is that the quicker you can repay the mortgage, the more money you will save so being able to step up payments could save you thousands of dollars.
– Are there penalties if you choose to switch to another lender? Remember that you aren’t required to stay with the same lender (and the same mortgage package) for the whole duration of the mortgage. If you discover that the rate you’re getting is uncompetitive, you are entitled to switch to a better deal. But some banks will charge you for switching, so it’s worth checking this in advance.
And, finally, remember to look beyond the initial headline rate. Sometimes mortgages will offer a discounted rate for a set period, after which the rate will default to the bank’s standard variable rate. You should therefore check what that standard rate is. If it’s overly high, and you don’t switch, then you could end up paying heavily.